The more I learn about wine, the more I realize I need to learn. There is so much to the industry. Over the past few months, I’ve spent a lot of time trying to understand wine futures. Basically, wineries can sell their wine before they bottle it and access the revenue from the sale right away, instead of waiting one to two years to sell it in bottles. This has been happening for years in France, Portugal, even a vineyard in California sells some of its wine as futures. Overall, though, there is not a futures market in the United States.
But, what if there was? Recent research from one of the professors at Syracuse University’s Whitman School of Management demonstrates that wineries and distributors can benefit from selling wine as futures, increasing overall revenue up to 20 percent in some cases. The researchers created analytical models to derive their conclusions. They even took into account risk associated with bad weather, such as the cold temperatures in Europe over the past several weeks. In one paper, they demonstrated how to price wine futures accurately, using barrel tasting scores and data from the London International Vintners Exchange (Liv-ex). In another, they created a model for distributors to use to determine how much wine to sell as futures versus bottled.
For decades, the U.S. wine industry has competed with the Europeans, mostly those in the acclaimed French wine regions. The creation of an American wine futures market might be just the thing to jump-start the domestic industry and put it on a new stage. If smaller wineries could see profit more quickly, they could immediately use that cash to invest in capital improvements, marketing and research. If distributors could make more money selling a portion as wine futures, perhaps they could sell some bottled wine at a lower cost for consumers.
It remains to be seen if the U.S. will ever see a wine futures market but if the researchers continue to find positive reasons, perhaps their work will tip the scales in favor of a Liv-ex for America.